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Interpreting Accounting Information : Decision Making Process

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Question:

Discuss about the Interpreting Accounting Information for Decision Making Process.
 
 

Answer:

Introduction:

Fruito is the local fruit shop operating in Australia. It is engaged in the selling and distribution of their produce to the local business such as hotels and restaurant. The accounts payable departments is concerned with monitoring the expenditure cycle along with ordering and receiving parts of the stocks. The company is exposed to the various risk faced while receiving and ordering the fruits and vegetables. This calls for the company to consider the need of the internal control of the accounts payable departments (Abbasi 2014). The company has appointed the financial accountant for the identification of the risk and the implementation of the internal control.

Table of finding:

S.No

Threat/ Issue Risk Phase of expenditure Business impact Recommendation for identified risk (Control/ Risk mitigate)

1.

Risk of inaccuracy of stock take (Mitra, 2015).

Receiving of the stocks

This might lead to the waste and shrinkage of the stocks and results in lower level of the accountability of inventories.

a)

There needs to be the stock process which is simple and the traceability of all the information should be easily allocated. This would help in minimizing the waste and shrinkage of vegetables and fruits.

b)

On the receiving of the stock, the Fruito should perform the quality control test which leads to accountability of higher level.

2.

Storage risk is another risk which Fruito might be exposed to.

Receiving

Improper storage would leads to the faster spoilage of the fruits and vegetables. The organization would not be able to provide the quality products if it is facing storage risk and thus hampering sales.

a)

The Fruito Company should have the proper guidelines of storing the products.

b)

There needs to be the receiving and stocking tips and there should be the process of handling an incoming delivery of products.

3.

Risk related to the vendor supplying the product

Ordering

The relationship with the prime vendor impacts the supply of the stocks to the local businesses of the organization.

a)

In this context, the level of the service needs should be established and whether the operations requires higher service level and there should be the identification of the frequency of deliveries based on the storage and space limitations (Lucia, 2013).

b)

There should be the audit privileges concerning the agreement with the vendors, which would serve as the compliance check. The managers or the financial accountant of the company should make the escape clause in the agreement made with the vendors (Alikhani et al., 2013).

4.

Financial risk related to the ordering of the stock

ordering

The ordering system needs to make financial sense as the excess inventory would leads to wastage and physical product in storage would impact the availability of the cash used in operations.

a)

The organization should have the proper system of ordering the stocks, which would make financial sense. It is recommended that the inventory level of the food products should vary from four to sixth times in a month. This would also assist in combating the cost (Collier, 2015).

b)

There should be the consolidation of purchasing which would result in greater buying power with the suppliers and thereby reducing the overall costs.

 

 

5.

The best plan of the company might get affected by the undesirable weather condition (Demski, 2013).

Ordering and receiving

The variations in the condition of weather would make Fruito inconsistent in meeting the demand of the local business and thus impacting the profits and return of the company.

 

a)

There should be accurate scheduling and planning that should allow the potential for the variation in the condition of weather.

b)

It is recommended that the Fruito should evaluate the level of experience in supplying and distributing their produce.  

 

 

6.

Risk associated with the inadequate control related to the expenditure cycles.

ordering

This would lead to the material weakness and results in the possibility of materially misstating the cost of service. It also leads to the failure of detecting the accrued liabilities on a timely basis.

a)

It is recommended to segregate the inventory control from the warehouse and the financial accountant should be able to reconcile the records of inventory to the physical inventory.

b)

There should be the segregation of the accounts payable and general ledger from the disbursement of cash (Hall, 2012).

7.

Risk of loss associated with the receiving process

 

receiving

This would impact the operations of the inventory control.

a)

The deliveries should be scheduled so that the products are stored immediately after thoroughly checking the fruits and vegetables by the receiving agents. There should be storage layout that is efficient, which helps in maintaining the safety, security and save time.

b)

The receiving agent should be made aware of the steps to be followed in receiving the stocks as this would ensure that the right product is available at the right price.

         
 

Reference:

Abbasi, H. (2014). Role of Management Accounting Information System in Organizations. Journal of Business and Technovation, 2(1), 96-102.

Alikhani, H., Ahmadi, N., & Mehravar, M. (2013). Accounting information system versus management information system. European Online Journal of Natural and Social Sciences, 2(3 (s)), pp-359.

Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.

Demski, J. (2013). Managerial uses of accounting information. Springer Science & Business Media.

Hall, J. A. (2012). Accounting information systems. Cengage Learning.

Lucia, P. P. (2013). Accounting, an essential component of the information system. Annals-Economy Series, 1, 66-73.

Mitra, S. (2015). Accounting information system a welfare approach.

Zare, I., Nekounam, J., Pirzad, A., Sedaghatjoo, F., & Mosavimoyahar, S. (2013). Role of accounting information systems on relevance of accounting information. Life Science Journal, 10(3s).

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